Finace And Stock

Select stocks to take direct or indirect hit from gas price hike

NEW DELHI: The government on Thursday hiked the price of natural gas, that is used to produce electricity, make fertilisers and turned into CNG to use as fuel in automobiles and cooking gas for household kitchens.

The 62 per cent price hike, coming on the back of a steep rise in international gas prices on supply concerns, is set to be positive for some oil & gas explorers but end users, especially companies that use gas-fired kilns, may take a hit.

The government said the rates paid for gas produced from fields given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) will be $2.90 per million British thermal units for the six-month period beginning April 1. The price for gas produced from difficult fields such as deepsea has been hiked to $6.13 per mmBt, the maximum rate the Reliance Industries will charge for gas it produces from deepsea blocks such as KG-D6.

Market commentators see the price rise as positive for oil and gas explorers, which may see better top line growth because of this. Shares of these companies could see a traction in Friday’s trade and onwards.

On the other hand, the increase in gas price is likely to result in a 10-11 per cent rise in CNG and piped cooking gas rates in cities such as Delhi and Mumbai, industry sources said.

City gas distributor (CGD) companies usually pass on any hike to their consumers, so they may not feel that big of a pinch. However it is still mildly negative for them. Market commentators advise caution before investing in such names. Watch out for shares of Mahanagar Gas, Indraprastha Gas, Gujarat Gas and Adani Gas.

The biggest negative impact will be on those industries, which use gas-fired kilns. For example, the ceramics industry is one of the biggest consumers of natural gas in its factories. Shares of such companies will be under the spotlight.

Some market participants believe the news may trigger short-term selling in the likes of Kajaria Ceramics, Asian Granito, Cera Sanitary, Somany Ceramics, HSIL, Nitco, Pikarna, etc.

Not just ceramics firms, the news is also negative for fertilisers companies, as their cost of production is set to go up. However, as the government subsidies the crop nutrient, a price increase is unlikely.

It will also lead to a rise in the cost of generating electricity, but consumers may not feel any pinch as the share of power produced from gas is very low, analysts said.

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